Please see statement below and provide your feedback. Thanks!
Bonds and interest rates have an inverse relationship; meaning that when bond prices are increasing, interest rates are falling and vice versa. After a bond has been purchased, if the interest rate increases and you want to sell your bond, you will have to sell it for less than what you purchased it for. This is because the bond would need to value the current market rate to the purchaser. If the interest paid on your bond decreases, in this case you could sell it for more and generate a profit.
To find the price of a bond you will need to know the coupon paid each period, the rate per return, the number of periods, and the bonds face value. The calculation will be:
Bond value = C x [1 – 1/(1 + r)^] /r + F/(1 + r)^
To find the price of stock you will need to know the last dividend (D), the long run growth rate (g), and the required return rate (R). The calculation will be:
Price = D₁/(R – g) = (D₀ x (1 + g)/(R-g)
The stock I selected is Apple, Inc. which is selling as of February 4th for $155.42. Apple is considered a growth stock. A growth stock is a company which is growing earnings and/or revenue faster than its business or the overall market (Investor Words). These companies tend to pay very little or no dividends. I believe this stock will stay stable for the current time until a new product is released, At that point, I see the stock price increasing.
I’m struggling a great deal with the last part of this discussion, as I feel that I’m lacking necessary information to calculate the proper return. If anyone has any advice or guidance on this, I’d greatly appreciate it.